Coke Moves To Pay-For-Performance: Won’t Comment On Savings

As if the advertising world wasn’t cutthroat enough: Coca Cola Co. wants to push the advertising industry into a “value based” compensation model like one it’s been testing that pays agencies nothing more than recouped costs if their ads don’t hold up, AdAge reports. Work that hits “top targets” could garner profit margins of up to 30%.

“We want our agencies to earn their profitability, but it’s not guaranteed,” Sarah Armstrong, Coke’s director of worldwide media and communication operations, told AdAge. “We need them to be profitable and healthy, but they have to earn it through performance.”

Is this saving Coke any money, and what does this mean for agencies? Read more after the jump.

Coke began testing this new model in five markets last yearAustralia, China, Germany, the U.K. and the Philippinesbut Armstrong declined to comment on whether Coke saw any savings in these markets, and claimed the move was not due to cost-cutting measures. But Coke’s rolling out the model in 35 new markets this year and by 2011, Coke will be employing the “value based” model in all its markets.

AdAge expressed concern about the workings of the model. “Will Coke’s agencies be willing to take the same creative risks if striking out means they’ll see no profit for their trouble? ‘That has not been a concern,’ Ms. Armstrong said. ‘I have a fundamental belief that our agencies are competitive enough that they are going to bring their A-games no matter what.'”

What will this mean for agencies that work with Coke, like Wieden & Kennedy, Crispin Porter & Bogusky, Starcom MediaVest Group and Mother and more? Increasingly uncertain budgets combined with a more cutthroat atmosphere sounds bad, any way you slice it.